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Sample Phantom Stock Agreement

July 11, 2003
Related Topics: Variable Pay, Featured Article, Benefits
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Phantom stock is usually used when a company wants to give stock-like incentives to some employees--without providing actual stock, and usually without providing voting rights. Here’s sample verbiage from one such agreement.


Sample Phantom Stock Agreement

Employer, Inc.

Phantom Stock Agreement

AGREEMENT made and entered into as of the ___, day of _______, 200_, by and between Employer, Inc., hereinafter called the Company, and ___________, hereinafter called the Employee.

WHEREAS, pursuant to the Long-term Incentive Plan, hereinafter called the Plan, the Company having determined that its interests will be advanced by providing an incentive to the Employee to increase the performance of the Company and to retain high quality talent, has awarded to the Employee a phantom stock award conditioned upon the execution by the Company and the Employee of a Phantom Stock Agreement.

THEREFORE, in consideration of the mutual promise(s) and covenant(s) contained herein, the parties hereby agree as follows:

SECTION ONE

GRANT
The Company hereby grants to the Employee phantom stock shares as a matter of separate agreement and not in lieu of salary or any other compensation, an award covering __________ shares of phantom stock subject to the terms, conditions, and restrictions set forth in this Agreement.

SECTION TWO

PHANTOM STOCK VALUE
A phantom stock share is an unfunded bookkeeping unit, entitling the Employee to payment of the appreciation in value of the phantom stock share. Each phantom stock shall have an initial value of _______ as of the Effective Date of this Agreement, and a value at any time thereafter equal to the increase in book value of stock over the five-year period.

SECTION THREE

WHEN EXERCISABLE
The Employee’s right to begin the receipt of payment in respect of phantom stock shares shall become vested and non-forfeitable at the last day of the Performance Period, ______, 200__.

SECTION FOUR

PAYMENT
The Company shall pay to each Employee, in respect of phantom stock shares awarded to the Participant and not previously forfeited, the amount, if any, by which the value of the Phantom Stock Shares on the last day of the Performance Period exceeds the value of the Phantom Stock Shares on the first day of the Performance Period (the spread). Payment shall be made over three years with the first payment being made as soon after the end of the Performance Period as the amount of the payment can be practicably determined. Therefore, at the end of the fifth year the participants will receive 33 percent of their award with the remaining 67 percent being received at the end of the sixth and seventh years.

SECTION FIVE

DIVIDEND RIGHTS
Each Participant shall be entitled to the equivalent of any dividend payable on a share of common stock of the Company for each phantom stock share granted to the Participant. Such equivalent dividend shall be accrued in the Employee’s Dividend Account on the date any common stock dividend is paid on and after the date phantom stock shares are granted to the Employee up to _______, 200__. Such dividends shall be paid directly to the Employee at the end of the Performance Period and shall be deemed additional compensation when paid. In the event an employee ceases to qualify as an Employee of the Company under Section 6, no further payments shall be made under this paragraph.

SECTION SIX

TERMINATION OF AWARDS
If the Employee terminates employment with the Company due to death, disability or retirement during the performance period, that phantom stock award, to the extend not already vested, may, according to the Company’s discretion, vest in full as of the date of such termination. Termination of the Employee’s employment with the Company for any other reason (i.e., "for cause") shall result in forfeiture of the phantom stock shares award on the date of termination to the extent not already vested. The Employee may designate a beneficiary(ies) to receive the phantom share payouts upon death. The Employee has the right to change such beneficiary designation at will.

SECTION SEVEN

IMPACT ON OTHER BENEFITS
The value of the phantom stock shares (either on the Award Date or at the time the shares are vested) shall not be includable as compensation or earnings for purposes of any other benefit plan offered by the Company.

SECTION EIGHT

ADMINISTRATION
The Committee shall have full authority and discretion (subject only to the express provisions of the Long-Term Incentive Plan) to decide all matters relating to the administration and interpretation of the Plan and this Agreement. All such Committee determinations shall be final, conclusive, and binding upon the Company, the Employee, and any and all interested parties.

SECTION NINE

AGREEMENT TO CONTINUE IN EMPLOYMENT
Nothing in the Plan or this Agreement shall confer on an Employee any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate the Employee’s employment at anytime.

SECTION TEN

NONALIENATION
An Employee shall have no right to pledge, hypothecate, anticipate or in any way create a lien upon any amounts payable under this Plan, and no benefits payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law.

SECTION ELEVEN

NATURE OF PHANTOM STOCK
This Plan is solely an arrangement to pay compensation. All benefits due under this Plan are unfunded and unsecured and are payable out of the general assets of the Company. The Participant’s right to receive payments under this Plan shall be no greater than the right of an unsecured general creditor of Bank in the event of its insolvency.

SECTION TWELVE

AMENDMENT(S)
This Agreement shall be subject to the terms of the Plan as amended except that the phantom stock shares that are the subject of this Agreement may not in any way be restricted or limited by any Plan amendment or termination approved after the date of the award without the Employee’s written consent.

SECTION THIRTEEN

FORCE AND EFFECT
The various provisions of this Agreement are severable in their entirety. Any determination of invalidity or unenforceability of any one provision shall have no effect on the continuing force and effect of the remaining provisions.

SECTION FOURTEEN

GOVERNING LAWS
This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Illinois.

IN WITNESS THEREOF, the parties have signed this Agreement as of the date hereof.

by: ______________________ (title) __________________________

Attest: ________________________
    Secretary

Attest: __________________________
    Employee

Reprinted from "Stock Option Alternatives, A Strategic and Technical Guide to Long-Term Incentives" by Brent M. Longnecker, CCP, CBP with permission from WorldatWork, 14040 N. Northsight Blvd, Scottsdale, AZ 85260; phone: (877) 951-9191; fax: 480 483-8352; www.worldatwork.org. ©2003 WorldatWork. Unauthorized reproduction or distribution is strictly prohibited.

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